The Triple3 Volatility Advantage Fund is set to be released to retail investors next week.
The fund trades in the ‘asset class’ of volatility via the use of VIX options and derivatives, according to Triple3 managing partner and chief investment officer Simon Ho.
Speaking at a luncheon in Sydney yesterday, Mr Ho said the fund currently manages $400 million of foreign institutional money and has been operating for three and a half years.
Mr Ho, who has been trading options for 21 years, described Triple3 as a research and investment firm that is “academically inclined” – with Goldman Sachs and Merrill Lynch among its clients.
Triple3 does not have an Australian Financial Services licence and will distribute its fund into the retail space via Grant Samuel.
Grant Samuel director and head of distribution Damien McIntyre said Triple3 will fill the “genuine need” of “real and sustained portfolio diversification” in Australia.
“Australian superannuation portfolios currently have the second highest allocation to equities in the world, at 54 per cent,” said Mr McIntyre.
“Traditionally investors have sought to diversity their equity risk by investing in bonds, cash and more recently, other non-traditional assets such as alternatives, with varying levels of success,” he added.
According to Mr Ho, volatility is an asset class that goes up in price when the stock market goes down.
"The volatility inherent in options markets is negatively correlated to traditional assets. It is possible to hedge out the risk of holding equities via options on the VIX Index," he said.
“And the more rapidly it goes down, the more rapidly [volatility] goes up. It’s a convex payoff – superb for someone who is looking for diversification from equities,” he said.
“The fund aims to deliver cash-like returns in periods when global equity markets rise or are flat, positive returns when markets are choppy and strong positive returns in periods when global equity markets fall,” said Mr Ho.
After consultation with potential retail investors in the lead-up to the launch of the fund, Triple3 put in a place a number of constraints on the fund to ease investor concerns about options.
"When you sell an option you can open yourself up to potentially infinite loss," said Mr Ho.
"We implemented a rule that we cannot be net short options. Zero or long options [only]. So we can never open ourselves up to infinite loss," he said.
In addition, investors will face a maximum loss of five per cent in any VIX expiry month, said Mr Ho.
"We have a deterministic loss – it cannot be violated. That’s only achievable if you use options,” he said.
